Oil prices rally on euro bailout
The size of the package surprised dealers and boosted confidence that oil demand will recover this year.
The package consists of 440 billion euros in guarantees from euro area states, plus 60 billion euros in a European stabilisation fund that could be disbursed to help euro zone states if needed. A further 250 billion euros would come from the International Monetary Fund.
Global equities and the euro rebounded and the dollar index slipped as news of the rescue package helped calm risk aversion.
Benchmark U.S. light crude oil futures for June delivery were $2.72 higher at $77.83 a barrel by 1102 GMT after hitting an intra-day high of $78.51, up $3.40. ICE Brent crude for June jumped $2.70 to $80.97.
Organisation of Petroleum Exporting Countries (OPEC) Secretary-General Abdullah al-Badri said he expected the emergency package to boost oil prices back up above $80 a barrel, but warned of wild price swings as the global economy continued on its path to recovery.
“I think the market will look positively at this development,” Badri told reporters on the sidelines of the Arab Energy Conference. “I assume prices would go back to normal, where it was … back up to $80 plus.”
Crude prices fell more than $11 last week, the biggest weekly loss in almost a year and a half, on worries the euro zone’s debt crisis would derail the global economic recovery.
David Hufton, managing director of oil brokers PVM in London, said oil prices should head higher again.
“If we lost $11 per barrel last week on a crisis of confidence, there is every reason to suppose we could gain a similar amount on a restoration of that confidence,” he said.
“Fundamentals on oil have not changed. They remain bearish, but that did not stop WTI hitting $87.15 only a week ago.”
Badri said on Sunday global oil markets were oversupplied, but it was too early to talk about the producer group taking action to halt the sharp price fall sparked by the euro zone debt crisis.
“OPEC is overproducing, there is no doubt about it,” he told reporters in Doha, urging greater compliance from OPEC producers with deep curbs in production agreed in 2008.
Price charts show U.S. crude temporarily supported at $74.51 and expected to rebound to $78 as the drop last week was too sharp not to be followed by a powerful rebound.
Saudi Arabia, the world’s top crude oil exporter, will maintain full volumes to its main Asian customers and keep supplies steady to at least one European major next month, suggesting it is content with oil prices.
China imported 21.17 million tonnes of crude oil or 5.15 million barrels per day in April, a record high level on a daily basis, according to data released by the customs department. The import level was 31 per cent higher than a year earlier, when imports were at 16.17 million tonnes.